Ghana’s Fiscal Fortunes: Fitch Upgrades Local-Currency Rating, Affirms Foreign-Currency Status

Fitch Ratings just dropped a major bombshell: an upgrade in Ghana’s Long-Term Local-Currency Issuer Default Rating (IDR) from ‘RD’ to ‘CCC.’ Here’s the lowdown:

Breaking Down the Upgrade

  1. Domestic Debt Exchange Triumph: The driving force behind this upgrade is Ghana’s successful completion of the domestic debt exchange program. Fitch sees this as a significant step, normalizing relations with a whopping 92% participation rate among local-currency creditors.
  2. Debt Service Reduction Magic: Brace yourselves for this—Ghana’s local-currency debt exchanges translate into a jaw-dropping GHS52 billion reduction in debt service for 2023. That’s a cool 6% of the estimated 2023 GDP, lightening the load on the country’s financial shoulders.
  3. US Dollar-Denominated Dance: Ghana waltzes into the US dollar-denominated debt exchange arena, adding another GHS5 billion to the debt service reduction party. Plus, a 50% principal haircut with the Bank of Ghana sweetens the deal.

The Eurobond Saga Continues

  1. Eurobond Restructuring Ballet: Ghana has unveiled its plans for external debt restructuring, outlining scenarios involving nominal haircuts, capped coupons, and extended maturities. The goal? A moderate risk of debt distress by 2028, aligning with the G20 Common Framework.
  2. IMF Harmony: The International Monetary Fund (IMF) and Ghana have struck a chord, reaching a staff-level agreement on the first review of the three-year Extended Credit Facility. Monetary financing of the fiscal deficit ended in May 2023, showcasing commitment.

Fiscal Symphony

  1. Fiscal Tightrope: Ghana’s commitment to a primary fiscal adjustment of 5.1pp of GDP by 2026 is on track. A 3.1pp adjustment in 2023 reflects a trimmed-down primary deficit of 0.6% of GDP, fueled by expenditure reductions.
  2. Debt Decline Duet: Anticipate a drop in general government debt to 87% of GDP by end-2023. A 50% haircut on Bank of Ghana’s non-marketable debt plays a pivotal role, counteracted by cedi depreciation and the primary deficit.

Global Aria

  1. Current Account Crescendo: Ghana orchestrates a shift from a 2.1% deficit in 2022 to a 1.1% surplus in 2023. Non-payment of external debt interest contributes, alongside a reduction in merchandise imports.
  2. Foreign Reserves Rhapsody: Current account surpluses and support from international financial institutions swell Bank of Ghana’s foreign reserves. An estimated USD1.1 billion/year boost in 2023-2025 sets the stage for economic harmony.

Conclusion: Ghana’s Financial Overture

While the journey to fiscal stability isn’t without its crescendos, Ghana’s strategic moves and partnerships are composing a new financial symphony. Stay tuned for the next movements in this economic masterpiece